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    ECB Publishes Results of Comprehensive Assessment of Certain EU Banks

    June 05, 2020

    ECB published the results of a comprehensive assessment of five Croatian banks, UBS Europe SE, and Bank of America Merrill Lynch International Designated Activity Company. The Croatian banks covered in the assessment are Zagrebačka banka, Privredna banka Zagreb, Erste & Steiermärkische Bank, OTP banka Hrvatska, and Hrvatska poštanska banka. The assessments, which consist of a stress test and an asset quality review (AQR), show that all the banks do not face any capital shortfall as they did not fall below the relevant thresholds used in the AQR and the stress test.

    The UBS and Bank of America (BOA) subsidiaries were required to undergo an assessment following the relocation of business activity to euro area from UK after Brexit. The relocations of UBS Europe SE and Bank of America led to both banks meeting the size criterion for being directly supervised by the ECB Banking Supervision. All banks that become, or are likely to become, subject to direct ECB supervision are required to undergo a comprehensive assessment, consisting of a stress test and an AQR. The Croatian banks underwent this assessment following a request from Croatia to establish close cooperation between ECB and the central bank of Croatia (Hrvatska narodna banka). 

    Stress test and AQR are based on the methodologies applied by ECB Banking Supervision in its regular comprehensive assessments of banks that have recently been classified as significant or could potentially become significant. AQR is a prudential, rather than an accounting, exercise and provides ECB with a point-in-time assessment of the carrying values of the assets of a bank on a particular date (June 30, 2019 in the case of the UBS and Bank of America subsidiaries). AQR also determines whether there is a need to strengthen a bank’s capital base. The AQR was complemented by a stress test exercise, which looked at how capital position of banks would evolve under a baseline scenario and an adverse scenario over the three-year period from mid-2019 to mid-2022. The assumptions used for the stress test scenarios could not take into account the current COVID-19 crisis, which only started to evolve in the first quarter of 2020. ECB is working on a consistent approach for all supervised entities to monitor the impact of the COVID-19 crisis. 

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    Keywords: Europe, EU, Basel, Croatia, Banking, AQR, Asset Quality Review, Brexit, Stress Testing, Regulatory Capital, Banking Supervision, ECB

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